Public Interest Group Questions Ballard's Parking Meter Privatization Deal

A Washington, D.C-based non-partisan, nonprofit research group, United Stats Public Interest Research Group (PIRG), has issued a policy statement raising concerns about Mayor Greg Ballard's proposed 50-year parking meter lease deal with ACS. Under a revised lease plan with ACS, the company is promising a $20 million upfront payment to the city that will be used for infrastructure improvements in Indianapolis' downtown and Broad Ripple neighborhoods. PIRG likens Ballard's privatization deal to the imposition of a new tax while borrowing $20 million against its future revenue and then dividing the proceeds from the new tax with a private tax collector.

Despite the recently-announced revisions to the 50-year lease plan that allows the city to terminate the lease at 10-year intervals after paying hefty termination fees to ACS, PIRG finds the lease deal is still problematic, not the least of which is the loss of control over the valued public asset. PIRG's Phineas Baxandall, Ph.D., writes:

The main changes were: a provision for early contract termination, a reduction in the city’s upfront payment, and an increase in its share of revenues. The mechanism for the city paying compensation to ACS for policies that reduce profits has also changed. Instead of paying penalties separately, the city will simply have the money docked from its monthly share of meter revenue shares. A provision added to the new contract proposal also states that should 30 percent of validly issued parking tickets be challenged, the city must pay a penalty to ACS.

When making future decisions about the city’s parking systems and street management, the public would need to weigh decisions about what is best for the community against their contract’s requirement to pay compensation to the concessionaires for actions or inactions that the companies claim infringe upon their profits. In response to virtually any action taken by the city that might reduce the parking system’s revenues or divert drivers to other locations, the city could be forced pay compensation to ACS. These actions might include holding new parades or street fairs, repairing nearby roads or closing roads to repair other infrastructure, improving nearby public facilities for parking , reducing scheduled parking rate increases, changing parking tax rates, or not enforcing ticketing rules strictly enough. Even the calculation of the compensation contains additional hidden costs. The city would be forced to pay for a day’s worth of meter revenue even if the meter is only blocked for four hours. In some areas, the contract would require the city to pay ACS compensation for meter "closure" that would nonetheless exceed the amount that the meter could collect if it was occupied for every minute of the long operating day.

PIRG's Baxandall dismisses the Ballard administration's claim that privatization of parking meters means the city's financial risk in the future is reduced in the event there is a downturn in the use of parkig meters and lots covered by the agreement. "But the measures in the proposed contract that require the city to pay compensation are designed to shift those risks instead onto the public," Baxandall states. "Meanwhile, the city takes on the added risk of ACS demanding anticipated compensation for city policies that could be decades in the future and may result in expensive lawsuits," he continues.

Baxandall estimates ACS would pocket anywhere from $400 million to $830 million based on "conservative estimates" during the life of the agreement compared to an estimated revenue gain to the city of $620 million. Those estimates don't take into account compensation the city would pay to ACS as compensation for blocked meters or reduced meters in the future, for example. He adds that it is difficult to estimate because ACS's anticipated revenues and costs are unknown, and ACS is not required to disclose that information under the terms of the agreement. One thing Baxendall says we can assume is that city drivers will be paying anywhere between $1 and $1.5 billion for use of metered spaces over the 50-year period.

Baxandall questions ACS' track record with these sorts of deals. Of course, he reminds us of ACS' partnership role with IBM in the failed privatization of Indiana's welfare services, which costs taxpayers upwards of $500 million. He claims Chicago opted against a role for ACS in its privatization deal because of problems the nation's capital incurred with ACS' mismanagement of public assets. On their performance in Washington, Baxandall writes:

The Washington D.C. auditor’s report on the performance of ACS in the maintenance and operation of the leased parking system showed that from the years 1999 to 2005, costs under ACS privatization were 33.4 percent higher and resulted in $8.8 million additional spending of taxpayer funds than if services had remained in‐house. ACS also improperly fined patrons $159,975 when they parked at broken meters. Overall meter complaints increased over 900 percent. Moreover, ACS inappropriately billed the city for $644,952 in penalties that the city did not owe them for temporary meter closures.

The early termination provisions added to the revised deal do not impress Baxandall, who says ACS "would feel almost no competitive pressure to perform well to renew its contract" due to the huge termination fees, including a $19.8 million fee if the city terminates the lease after the first 10 years. He also anticipates the city would incur an additional $5 million because it would no longer possess the in-house capacity to manage its parking system. He also worries that because of the long length of the lease whether ACS would have much of an incentive to properly maintain and invest in the facilities on the back end of the lease.

Baxandall scoffs at ACS' promise to bring 200 jobs to the city if it is awarded the lease agreement. Because it's not a part of the actual contract, the promise doesn't specify the rate of pay or whether the jobs are part-time for full-time, it's really an empty promise. He notes the city would have to rely on reports from ACS to confirm the job creation and there is really no penalty for noncompliance. He wonders why the city did not go back to the original bidders to see if they would offer better terms when it looked at revising the agreement to ensure the city got "the best private deal obtainable" similar to the way Pittsburgh negotiated its deal.

Lastly, Baxandall believes the deal is weak on transparency and avoidance of conflicts of interest. He complains that "public disclosure is lacking when it comes to the financial arrangements and assumptions set out between ACS and its financiers." He adds, "This information is vital to understanding the private partners’ expected costs, profits, and respective legal obligations. If ACS wishes to do business with the city, it should not keep this information secret under the guise of “proprietary” business secrets." Baxandall thinks the city's first mistake was using Morgan Stanley as its financial advisor. "The company is one of the primary investors in the Chicago deal and stands to gain from the deals they advise on," he notes. "That is a clear conflict of interest." He also questions the influence Joe Loftus, one of Mayor Ballard's senior advisors, may have had in the deal as a registered lobbyist for ACS. "After the apparent conflict was revealed, Mr. Loftus claimed his duties with ACS were unrelated to the parking deal," Baxandall writes. "Regardless, disclosure should have [been] provided upfront."

UPDATE: A friendly reader reminded me of a what Bill Brooks wrote in his "Babblin Brooks" column in the most recent edition of Urban Times, a downtown neighborhood newspaper. Brooks likes the high-tech features of the new system. He wrote:

You're in a meeting Downtown when you realize that your two hours are almost up. Today, you dash out the door, down the elevator and on to the street. Soon, instead, you pick up your cell phone, dial a number, punch in the parking meter number, and pay for another two hours . . .

You pull into a space at 6 a.m., an hour before the meter starts. Today, you pay for one hour needlessly in order to put in three more quarters to cover you after the meter starts. Soon, you can pay ahead, so the meter and your money doesn't start until 7 a.m.

If I'm David Andrichik, owner of the Chatterbox Tavern on Mass Avenue downtown, I don't like that convenience of the modern parking system Brooks just described. Andrichik testified before the city council he supported the deal because it would lead to higher turn-over in metered spaces, a problem he complains about. Andrichik blames theater goers for hogging parking spaces near his business. He thinks extended hours and higher rates will put a stop to that. From my own personal observation, I've noticed the worst offenders of hogging metered spots on Mass Ave. are the employees of business owners, who park in front of their business owner's establishment and feed the meter during their shift. The original agreement with ACS called for higher rates of .50 cents an hour for use of a space in excess of 2 hours. That provision was removed from the revised agreement, which means there is no penalty for hogging a space all day. With the convenience of the new technology Brooks describes for remotely adding time to your meter, that practice will only escalate. Another concern overlooked is the risk of data gathered from this online technology being breached by Internet hackers. ACS has a less than stellar track record when it comes to safeguarding personal data from breaches.

On the technology point, Baxandall shared this bit of information with me in an e-mail:

In Chicago, the supposed increase in efficiency from the private parking company was that the new meters prevented what the industry calls “leakage.” It made it impossible to use left over minutes from the previous person who parked in the spot. Thus, claims of improved efficiency were really just a direct redistribution from residents to the company.

I hadn't thought of that. Many times I will pull into a parking space that has unused time. From what he's describing, when a different user attempts to add minutes, you lose any unused time from the parking space's previous occupant.